China’s Stocks Decline After Weeklong Holiday on Policy Outlook

By Bloomberg News -
Jan 30, 2012

China’s stocks fell after property
and retail sales weakened during a weeklong holiday and the
government signaled caution toward further easing of monetary
policy by holding off on a cut in bank reserve requirements.

“There was no reserve-ratio cut during the holiday so
liquidity will still be tight,” said Wu Kan, a Shanghai-based
fund manager at Dazhong Insurance Co., which oversees $285
million. “It looks like the government isn’t in a hurry to
release too much liquidity into the market as opposed to the
market expectation of an immediate and aggressive relaxation.”

Barclays Capital Asia Ltd., JPMorgan Chase & Co. and
Industrial Bank Co. said this month that lenders’ reserve ratios
were likely to fall ahead of the Lunar festival, which boosts
demand for cash. The central bank instead used reverse-
repurchase contracts to add money to the financial system.

Avoiding Credit ‘Explosion’

“The central bank aims to ease policies prudently and pace
loan growth at the beginning of the year so as to avoid a replay
of the credit explosion in 2009 and 2010 and prevent inflation
from rebounding,” said Lu Zhengwei, a Shanghai-based economist
at Industrial Bank.

China’s money-market rate jumped for the first time in four
days today. The seven-day repurchase rate, a gauge of funding
availability in the financial system, surged 22.4 basis points,
or 0.224 percentage point, to 4.3515 percent as of 3:21 p.m. in
Shanghai, according to a weighted average compiled by the
National Interbank Funding Center.

A gauge of 34 property stocks in the Shanghai Composite
slumped 2.8 percent, the most among the five industry groups.
Vanke, the nation’s biggest listed property developer, fell 4.4
percent to 7.55 yuan. Poly Real Estate, the second largest, lost
4.7 percent to 10.43 yuan. China Merchants Property Development
Co. retreated 3.3 percent to 18.27 yuan.

Signs of Slowdown

Home transactions in China’s four biggest cities Beijing,
Shanghai, Guangzhou and Shenzhen recorded 109 units during the
week-long Chinese New Year, according to an e-mailed report from
Centaline Property Agency Ltd. That was 66 percent down from the
same holiday period last year, China’s biggest real-estate
brokerage said.

Sales in Beijing fell to zero during the holiday, the first
time in three years that no sales were recorded for a week, the
Beijing Morning Post newspaper reported yesterday, citing data
from the local government. Average home prices dropped 23.6
percent from a year earlier as of Jan. 27, it said.

Retail Sales

Sales by China’s main retailers and restaurants during the
Chinese holiday rose 16.2 percent from a year earlier to 470
billion yuan ($74.4 billion), the Ministry of Commerce said in a
Jan. 28 statement on its website. That compared with a 19
percent gain in the same period last year, according to Guotai
Junan Securities Co.

The Shanghai Composite gained 3.3 percent in the week ended
Jan. 20, its first back-to-back weekly gain in two months, on
speculation slowing growth will prompt the central bank to relax
monetary policies and the government will take measures to
support stocks. China has no plans to invest local pensions in
the market “temporarily,” the Xinhua News Agency reported on
Jan. 20, citing Yin Chengji, spokesman at the Ministry of Human
Resources and Social Security.

The Shanghai index, up 3.9 percent this year, trades at 9.4
times estimated earnings, near the record low of 8.9 times
reached on Jan. 6, according to weekly data compiled by
Bloomberg.

Quantitative Easing

Federal Reserve Chairman Ben S. Bernanke laid the
groundwork last week for a third round of so-called quantitative
easing, or QE3, saying that the Fed is prepared for further
“accommodation.” The central bank, which bought $2.3 trillion
of debt as part of QE1 and QE2, also reiterated a commitment to
keep rates low until at least 2014.

The U.S. economy grew at a 2.8 percent annualized rate in
the three months through December, compared with a forecast for
a 3 percent increase. Growth accelerated from 1.8 percent in the
previous quarter.

Emerging-market stocks would benefit from the cash
injection created by a third round of U.S. asset purchases, with
China, Russia and Taiwan looking “attractive,” Templeton Asset
Management’s Mark Mobius said in a phone interview from Bangkok
on Jan. 27.

Mobius Forecast

Chinese stocks will “probably see a rally” this week,
said Mobius. “There’s no question” China will continue to
loosen monetary policy and he recommends consumer, energy and
commodity stocks in the country, he said.

The People’s Bank of China may skip its usual sale of bills
this week because of maturing reverse bond repurchase
agreements, Market News reported today, citing unidentified
traders. China won’t push for an expansion of cities
participating in a property tax trial in 2012, Caixin Online
reported today, citing the State Administration of Taxation.

Chinese listed companies have started to announce annual
earnings reports and will finish before the end of April.
Thirty-eight companies in the Shanghai Composite have released
annual profits so far, gaining 19 percent on average and
trailing estimates by 2.9 percent, according to data compiled by
Bloomberg. That compared with an increase of 38 percent in the
previous year.